Understanding How Inflation Can Hurt Your Credit Indirectly

3 Money-saving Secrets You Probably Never Heard About
3 Money-saving Secrets You Probably Never Heard About
March 20, 2023
5 Steps To Take Before You Prepare Your Taxes
March 20, 2023
Show all

Understanding How Inflation Can Hurt Your Credit Indirectly

How Inflation Can Hurt Your Credit

How Inflation Can Hurt Your Credit Indirectly

Inflation is the inevitable progression of prices of goods and services over time. Inflation is tracked by the federal government through statistical measurements called the consumer price index (CPI).

The CPI measures costs of consumer goods and services, and segregates it into tracking food and energy prices. Inflation is the combination of a price rise and lowered buying power of the dollar of income. It can also be caused by a healthy economic expansion.

The recent talk of inflation in the news has led to questions upon the potential effect it would have on credit and personal finances.

Inflation, as such, has no direct impact on credit scores, reports, or qualification ability for credit or loans. However, it may indirectly influence credit by affecting the household budget.

Here’s how inflation can indirectly hurt your credit.

Indirect Impact Of Inflation On Credit

While inflation does not directly influence the credit report, greater changes in the dollar value might cause circumstances that eventually hurt your credit scores, thereby, limiting your ability to borrow money:

A.) Too Much Debt

Using credit cards as a substitute to your income for covering expenses in full, higher card balances and usage would hurt your credit score through piled debt.

B.) Extravagant Expenses

When the prices of your everyday essentials increase as a stretch that leaves you between a choice of, suppose, grocery shopping or clearing monthly debt payments, in that case, late or missed payments would cause damaged credit scores.

How To Manage Credit During Inflation Times?

You must consider financial strategies for inflation management, including considering income boosting such as asking for a raise, diversifying your investment holdings, or even starting a freelance side hustle. Here are certain basic ways:

  1. Deliberate Over Major Purchases

Factors influencing present inflationary trends range from limited availability with a higher demand for goods and properties in several parts of the country. Hence, you must deliberate over major purchases, such as a car or house, as it might not be the ideal time to do so.

  1. Consider Surplus Asset Sale

During inflation, typical seller’s markets for various high-value assets, like vacation homes, cars, RV, or other real estate, become high in market demand. Thus, inflation would help you attain a top dollar upon sale. Keep in mind that inflation pieces would be unfavorable for you as a buyer, if you intend to replace an item you sold.

  1. Plan For Emergencies

Prudent usage for the money you gain from sold assets or savings, add them to bolster your retirement savings or emergency fund for households.

  1. Debt Payment

Once you have paid the bills and covered most of the financial priorities, think of putting the extra income to pay off the debt. As consumer prices increase, the existing debt costs– particularly of credit cards and loans with fixed interest rates– remain stable, paving an ideal fund usage. Plus, credit utilization and decreasing overall debt boosts your credit scores and spares interest charges.

  1. Get Assistance If Required

If inflation causes your household expenses to rise at a level where paying bills becomes difficult, consider consulting with authorized credit counselors for advice and budgeting assistance, debt prioritization, and if required, negotiation to lower your monthly costs with your creditors. Financial assistance through government benefits, grants, or service access are also great options.


While inflation doesn’t majorly affect credit, managing and implementing good financial choices helps in a positive influence over credit profile. If you wish to stay solid upon the credit ground, you can consult with experts at Xander Financial.